Why it Pays to have a Business Plan
What is a Business Plan?
A good Business Plan will describe your business now and what you expect it to look like in the future. Focus on how you intend to get there and the implications of the growth. Remember, don’t just make it all sound like plain sailing, you should also make it clear you have recognised potential downsides and pitfalls and have a strategy to avoid, or at least, mitigate them.
I guess it needs to include financial planning?
Most definitely - we are trying to convince a potential lender that your business is viable. The plan can also act as a vital check that you understand the impact of the planned growth and, crucially, that you have the finances in place to cope with it.
Surely if my business is growing, it will be more profitable?
Well yes, hopefully, but don’t take it for granted. Consider this: You take on more staff to respond to the growth but also need machinery – you may even need new premises. That’s a potential big hit to your cost base. You need to be pretty confident you can cover those extra costs by larger profits from extra sales.
Good point. That makes sense . . .
And you don’t need me to tell you that profit doesn’t automatically mean extra cash. Your payment terms to your suppliers are 30 days, your wages, premises and machinery costs need to be paid monthly but your customers are paying you after 60 days. Suddenly the extra sales mean money is going out the door, fast – at least in the short-term.
So it’s all about the financials?
Not entirely. The financial examination - of past, current and future trading – might be best described as the impact of your trading. First of all the lender will want to understand your business, not least to get a handle on your financial performance.
If I include every detail am I not in danger of making the plan too long and sound dull?
I’m not saying include every detail - the balance of a good Business Plan is to be sharp and to the point but that mustn’t be at the expense of a good demonstration that you have considered the key challenges.
This is all really helpful but what should my Business Plan look like?
I would normally expect to see the following included: Executive Summary, description of what the business does and its marketplace, key individuals, future plans including the need for additional funding, summary of past, present and future financials and then a summary highlighting key points. As appendices, I would also include detailed financials and – depending on size and stage of business - breakdowns of personal assets and liabilities and personal Income and expenditure.
I get the picture. Is that it?
I hesitate to say it, but this isn’t necessarily the definitive list because it will vary from business to business, sector to sector, lender to lender and even the size of loan you are looking for. The key thing to remember is that you are demonstrating to yourself, and potential lenders, that your expectations are realistic and you have mitigated risks as far as possible.
That all sounds very time consuming
It’s certainly not a five-minute job but think what you are putting at risk and, just as importantly, what you stand to gain. This plan is not just to attract funding, it will also be a tool to help you monitor the progress of your business.
Is it worth calling in outside help to prepare the plan for me?
Yes, but it is your business. You will know more about it than anyone else. Are you happy sharing that information with maybe your accountant or another person?
OK – and it really will help?
Yes, without doubt. A number of lenders will insist on a Business Plan and that will obviously increase your choice of finance providers and therefore potentially reduce the cost of your finance.
Red: You need a plan of action – do you know what will happen three months down the road – let alone three years
Amber: Invest some time. You may even need to bring in some outside help to put together a comprehensive plan
Green: A well-prepared Business Plan is likely to increase your number of business financing options.
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